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Buy a New Car, Get a Deduction
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President Obama signed “The American Recovery and Reinvestment Act of
2009″ into law on February 17, 2009. The law includes a new consumer
tax deduction to purchase a motor vehicle during
2009.
Lets break it down:
There is no restriction on the type or car and it does not have to be a Hybrid. Unlike the worker and housing tax credits, the car buyer tax break is an income tax deduction. This means that it would reduce your taxable income and hence net tax liability. So the higher your tax rate, the more you will benefit.
Senator Barbara Mikulski is author of the amendment and here are the relevant details from the official press release (based on the original Senate proposal):
"The American automobile industry is currently one of the biggest drivers of the U.S. economy. Six million jobs are at stake in the American car industry and one out of every 10 jobs in America is auto-related. A collapse of a major U.S. automaker, such as GM, Ford or Chrysler, would further erode the American economy, given the huge network of suppliers, dealers, and other businesses and communities that would be affected. [This] amendment is not about bailouts. It's about jobs, jobs, jobs.
The amendment is simple. If you buy a new passenger car, mini-van, or light truck by December 31st of 2009, you will get a tax deduction for your sales or excise tax and the interest on your loan. A family would save about $1,500 on a $25,000 car, not counting the additional incentives from dealers.
This amendment also helps state governments. States rely on tax revenue from new car sales. In my home state and many other states the sales tax is around 6 percent, so on a $25,000 car the state gets $1,500 in revenue. New car sales are down millions per year from their averages. This means states are losing billions when they already are struggling. As people buy new cars states' tax revenues will increase.
This amendment is a big deal to families because a car is the second biggest purchase most families make. My amendment is targeted. Families with an income of more than $250,000 a year are ineligible. Cars costing more than $49,500 also are ineligible. This amendment also helps the environment because it gets more people into new cars and new cars are cleaner and more fuel efficient than old cars.
There are 20,000 new car dealerships nationwide. They employ a million people. Most people don't realize that dealers employ an average of 53 people in sales, mechanics, and administrative positions. I visited car dealerships in Maryland and heard from these employees.
Well, I say let's put money where it matters - where it creates jobs. That's why we need this amendment for creating jobs, for consumers, and for the auto industry that is such a driver of our country's economy - so we can get America rolling again."
An Illustration Of How The Tax Deduction Works
Let’s look at a quick example of how the tax deduction would work in the real world. Let’s say you buy a new car for $20,000 this year, and had a trade-in of $9,000. Typically states would tax the difference between the new car and the trade, which in this instance would be $11,000.
At a tax rate of 6.5%, that would mean your deduction in this case would be about $715. Tax rates vary by state, so your deduction will be based on the tax rate in your state.
If you are buying a $20,000 car with no trade, you would reduce your taxable income by $1300 (at our example 6.5% tax rate).
Please consult your tax accountant or CPA for further details.
Lets break it down:
- Provides a new tax deduction on 2009 income taxes for “qualified motor vehicle taxes”.
- Qualified motor vehicle taxes include any State or Local Sales or Excise tax imposed on the purchase of a qualified motor vehicle.
- Qualified motor vehicles include passenger automobiles or light trucks with a weight rating not exceeding 8,500 pounds.
- Applies to NEW vehicles only.
- Deduction allowed even if you don’t itemize deductions.
- Limit on Price: New vehicle price cannot exceed $49,500.
- Income Limit: Phased out for taxpayers making $125k singly or $250k jointly.
- Effective date: PURCHASES FROM FEB 17,2009 - JAN 1, 2010
There is no restriction on the type or car and it does not have to be a Hybrid. Unlike the worker and housing tax credits, the car buyer tax break is an income tax deduction. This means that it would reduce your taxable income and hence net tax liability. So the higher your tax rate, the more you will benefit.
Senator Barbara Mikulski is author of the amendment and here are the relevant details from the official press release (based on the original Senate proposal):
"The American automobile industry is currently one of the biggest drivers of the U.S. economy. Six million jobs are at stake in the American car industry and one out of every 10 jobs in America is auto-related. A collapse of a major U.S. automaker, such as GM, Ford or Chrysler, would further erode the American economy, given the huge network of suppliers, dealers, and other businesses and communities that would be affected. [This] amendment is not about bailouts. It's about jobs, jobs, jobs.
The amendment is simple. If you buy a new passenger car, mini-van, or light truck by December 31st of 2009, you will get a tax deduction for your sales or excise tax and the interest on your loan. A family would save about $1,500 on a $25,000 car, not counting the additional incentives from dealers.
This amendment also helps state governments. States rely on tax revenue from new car sales. In my home state and many other states the sales tax is around 6 percent, so on a $25,000 car the state gets $1,500 in revenue. New car sales are down millions per year from their averages. This means states are losing billions when they already are struggling. As people buy new cars states' tax revenues will increase.
This amendment is a big deal to families because a car is the second biggest purchase most families make. My amendment is targeted. Families with an income of more than $250,000 a year are ineligible. Cars costing more than $49,500 also are ineligible. This amendment also helps the environment because it gets more people into new cars and new cars are cleaner and more fuel efficient than old cars.
There are 20,000 new car dealerships nationwide. They employ a million people. Most people don't realize that dealers employ an average of 53 people in sales, mechanics, and administrative positions. I visited car dealerships in Maryland and heard from these employees.
Well, I say let's put money where it matters - where it creates jobs. That's why we need this amendment for creating jobs, for consumers, and for the auto industry that is such a driver of our country's economy - so we can get America rolling again."
An Illustration Of How The Tax Deduction Works
Let’s look at a quick example of how the tax deduction would work in the real world. Let’s say you buy a new car for $20,000 this year, and had a trade-in of $9,000. Typically states would tax the difference between the new car and the trade, which in this instance would be $11,000.
At a tax rate of 6.5%, that would mean your deduction in this case would be about $715. Tax rates vary by state, so your deduction will be based on the tax rate in your state.
If you are buying a $20,000 car with no trade, you would reduce your taxable income by $1300 (at our example 6.5% tax rate).
Please consult your tax accountant or CPA for further details.
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